Oral arguments heard by Colorado Court of Appeals

On Tuesday, September 4, the Colorado Court of Appeals (Division IV) heard plaintiffs’ appeal of the Denver District Court’s decision that granted a Summary Judgment which dismissed Justus et al v. State of Colorado and PERA et al. Richard Rosenblatt presented oral arguments on behalf of Justus et al. Sean Connelly, a partner in the Reilly Pozner law firm (and a former member of the Colorado Court of Appeals from 2008-2011) presented for the State of Colorado and PERA et al. Judges were Dennis Graham, Diana Terry and Jerry N. Jones. The link to the audio transcript of the arguments, approximately 45 minutes in length, is below:http://www.courts.state.co.us/Courts/Court_Of_Appeals/Oral_Arguments/Index.cfm Upon reaching this page, click on Justus v. State of Colo in the September 4 box.
Each judge posed questions to the attorneys . It’s suggested that you turn down the bass on your speakers to enhance audio quality.
A decision by the Court will be issued in due course, date unknown

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ILLINOIS PENSION CHIEF SUGGESTS COLA THEFT, ILLINIOS PUBLIC SECTOR UNION MEMBERS CALL FOR HIS RESIGNATION FOR BREACH OF FIDUCIARY DUTY. “FOX IS GUARDING THE HEN HOUSE.”

Funny, when Colorado PERA officials suggested the taking of pension COLA benefits from PERA retirees, Colorado public sector unions urged them on. When an Illinois pension official suggests the taking of pension COLA benefits from retirees, Illinois public sector unions call for his resignation . . . call his political advocacy a breach of his fiduciary duty.

Is there any question? Colorado public sector union officials are a breed of their own. One wonders what they have in common with the rest of the labor movement, how their actions conform with historical objectives of the labor movement in the United States.

From the Illinois teacher’s union press release:

“The state benefits from a system where teachers–who do not collect Social Security–can avoid poverty in retirement. But, once again, the current executive director of TRS, Dick Ingram, has announced his personal views about diminishing key benefits for existing workers and retirees.”

“In an interview with Crain’s Chicago Business last week, Ingram focused his remarks, as he did in April, 2012, on reducing cost of living adjustments (COLAs). It is inappropriate for Mr. Ingram, who is responsible for safeguarding the retirement benefits of 360,000 teachers, to promote his personal views by advocating for the destruction of TRS members’ retirement security.”

“Such actions contradict his fiduciary duty and are in violation of a resolution passed by the TRS Board of Trustees. Mr. Ingram’s insubordinate and irresponsible actions can only result in one honorable outcome—his resignation.”

“Mr. Ingram fails to mention in his many interviews that teachers in the system have already paid for the cost of living benefits he wants to cut—their payments are built into the contribution calculations they are required to make in every paycheck.”

“Mr. Ingram may think that he can mislead the members of the TRS Board of Trustees into believing that his remarks do not violate their fiduciary responsibility or their own resolutions regarding TRS advocacy. We have more faith in the board members than that.”

“The Teachers Retirement System must work for its members, not the politicians, corporate executives, or newspapers its leaders may be bullied by.”

“When the fox is guarding the hen house, it is the fox that must go. Mr. Ingram has lost the trust of those he is employed to protect. He should resign from his position as TRS executive director.”

In 1998, newly elected State Treasurer Mike Coffman was examining alternatives to shore up the Colorado PERA pension trust funds. At the behest of the Treasurer, Colorado PERA hired George K. Baum and Company to explore the potential use of “pension certificates of participation” (PCOPs) as a means of meeting Colorado PERA’s unfunded pension obligations. On February 2, 1999, the result, (a brief study) was presented to State Treasurer and PERA Board member Mike Coffman. (This George K. Baum study has been available for public inspection since Treasurer Mike Coffman left state office.)

Two pages of the George K. Baum document are of particular interest to PERA retirees contesting the breach of their pension contracts. (When I get some time I’ll post scans of the two pages on the Save Pera Cola Facebook page.) The text from the two pages is excerpted below:

From the 1999 George K. Baum study:

“The Benefits of a Pension Obligation COP

– Reduce or eliminate the unfunded liability.
– Cost saving alternative to reducing unfunded liability than current pay as you go method.
– Surplus earnings could be used to reduce State (employer) contributions or other funding sources for the life of the COP issue.
– Taxable municipal rates of interest are near historical lows – Current rate of interest would be approximately 6.2%.
– By addressing the problem today, PERA would reduce its exposure to economic downturns and the potential of inaccurate actuarial assumptions.”

“Issues that need to be addressed

– Legality of issuing pension obligation pension obligation COP’s and what entity would issue them.
– How would surplus earnings be used to fairly reduce future contributions from the State and others?
– Why does PERA appear to have a policy to keep a 10% unfunded liability? Hard data needed regarding PERA’s current plan to reduce the unfunded liability.
– Can political momentum be created to address the unfunded liability with Pension Obligation COPs?
– How can George K. Baum stay involved and continue to study this idea on behalf of the State and PERA?”

These excerpts from the George K. Baum study raise a number of concerns and questions.

Why were PCOPs historically rejected by the State Treasurer, the PERA Board of Trustees, and the General Assembly as a “less drastic” alternative to the eventual breach of PERA public pension contracts?

It appears, from the George K. Baum study, that even when alternatives such as PCOPs have been considered as a method to ensure that the State of Colorado and PERA meet their contractual pension obligations, a primary consideration has been how the alternative might be used to reduce PERA-affiliated employer contributions.

Why has the PERA Board historically abandoned this “less drastic” alternative of PCOPs? Did it simply come down to a policy choice? The PERA Board and the General Assembly prefer that PERA retirees bear a burden that legally belongs to all Colorado taxpayers?

Do the members of the PERA Board realize that if this “less drastic” alternative to the breach of PERA pension contracts (PCOPs) had been pursued, the actuarial funded ratio of the PERA trust funds would have been higher in 2010, and accordingly the underpinnings of PERA’s “actuarial necessity” argument would have been eliminated?

Why did the PERA Board ignore the opportunity to use “historically low interest rates” to bolster the PERA trust funds? Why has the PERA Board supported the breach of PERA retiree pension contracts in SB 10-001 instead of taking advantage of today’s “historically low interest rates” to issue PCOPs?

An important question for PERA Board consideration: Should public pension contracts be breached as a result of the self-serving policy preferences of public pension plan sponsors?

What was the point of PERA’s policy to intentionally underfund the pension? What actions has Colorado PERA taken in the last decade to meet its goal of a 90 percent actuarial funded ratio (AFR) for the PERA trust funds?

In light of the PERA Board’s historical policy to cap the PERA pension trust fund AFR at 90 percent, how can the PERA Board morally and legally support the taking PERA retiree contracted benefits until a 100 percent actuarial funded ratio threshold is reached? Apparently, for many years, it has been PERA Board policy to avoid the 100 percent funded level it seeks in SB 10-001.

Why did the PERA Board and the General Assembly fail to heed George K. Baum’s admonition to “address the problem today,” and to “reduce PERA’s exposure to economic downturns”? Was it more politically expedient to simply ignore the funded level of the PERA trust funds, wait for the economic downturn that George K. Baum had predicted, and then support the breach of PERA retiree pension contracts?

How was the PERA Board’s intentional, historical pension underfunding policy addressed during board discussion of SB 10-001? Was it buried?

Do the PERA Board members realize that if the board had not historically strived to cap the PERA trust fund AFR at a 90 percent level, the AFR would have been higher in 2010, precluding PERA’s assertion of “actuarial necessity”?

Do the members of the PERA Board realize that board policies and the failure of the General Assembly to fund pension obligations at a level sufficient to ensure the soundness of the PERA trust funds have lowered the AFR of the PERA trust funds? Why should PERA retiree pension contracts be breached as a result of past, poor decisions on the part of the PERA Board and the Colorado General Assembly?

The PERA Board’s “90 percent pension funding” policy explains the failure of PERA administrators to impress upon the members of the General Assembly that Colorado state and local governments are parties to a pension contract, that they are stewards of PERA pension trust funds, that the PERA pension must be adequately funded, that the General Assembly must resist its inclination to use the PERA trust funds as a means of taxpayer cost-shifting. (Doing this might have resulted in legislation bringing the PERA trust fund AFR above the desired 90 percent level!)

A PERA Board and PERA administrators who adhere to an internal policy of capping the PERA trust fund actuarial funded ratio at 90 percent will obviously fail to impress upon the members of the General Assembly the importance of fully funding the PERA pension.

As we have seen, the primary concern of the General Assembly over the past two decades has been lowering the cost of government in Colorado, and in particular public sector salaries and benefits. The taxpayers of Colorado have a right to elect legislators with such policy goals. However, the taxpayers of Colorado cannot bestow on these legislators the power to breach contracts. The General Assembly’s historical policy preference to reduce tax receipts has taken precedence over its recognition and management of PERA contractual pension obligations. (Recall the legislative grant of $100 million in discretionary tax relief at the session following the breach of public pension contracts in SB 10-001.)

I suspect that the PERA Board has historically supported the “90 percent pension funding” policy as a means of controlling the General Assembly’s desire to shift governmental costs onto the PERA pension trust funds. Where a public pension is “fully-funded,” political mischief ensues.

When a 100 percent PERA AFR was achieved in 2000, the General Assembly acted to “shift” public sector labor costs onto the PERA pension. How was this accomplished? The General Assembly and Governor Owens adopted statutes to incentivize the early retirement of “expensive,” older public sector employees. (This motivation has been acknowledged by sponsors of PERA legislation in testimony before the Legislature for many years.)

Public employees who retired as a result of the Legislature’s 2000 statutory incentives were replaced with workers who had lower salaries. The new retirees caused a corresponding actuarial liability for the PERA trust funds. Net result: lower public sector labor costs and higher PERA pension liabilities. Cost shift complete.

Members of the PERA Board and members of the General Assembly should know one thing. The historic proclivity of the General Assembly to shift public sector labor costs onto the PERA trust funds provides no justification for its latest attempt to shift labor costs . . . the attempt in SB 10-001 to shift public sector labor costs, specifically PERA pension obligations, onto the backs of PERA retirees.

PERA BOARD CHAIR: PERA RETIREE BENEFITS ARE DEFERRED COMPENSATION FOR WORK COMPLETED IN THE PAST . . . PART OF THE EMPLOYMENT EXCHANGE TRANSACTION.

A few weeks ago Vince Carroll, a columnist for the Denver Post, wrote about the Memorial Hospital lease in Colorado Springs, and the city’ attempt to push its share of unfunded PERA pension obligations onto other Colorado municipalities. I understand that a suit and counter-suit have been filed in a Denver court relating to these pension obligations.

“In an era of soaring public debt, an aging population, and flagging prospects for strong long-term growth, PERA’s assumed rate of return appears almost delusional.”

(My comment: Remember that in the “highway bill,” Congress recently approved return assumptions for private sector defined benefit plans that average 7.5 percent . . . this level of return assumption is in the neighborhood with most public sector defined benefit plan return assumptions. Also, PERA’s return assumptions are in line with historical PERA portfolio performance. The private sector plan return assumption approved by Congress was not mentioned in Carroll’s column. Since public sector entities exist in perpetuity, public sector pension plan return assumptions, at a higher level than private sector plan return assumptions, are justifiable.)

Carroll continues:

“Maybe that helps explain the pension fund’s (PERA’s) bulldog approach to extracting every possible cent from Colorado Springs’ decision to lease its Memorial Health System to University of Colorado Health.”

(My comment: Occasionally, Carroll writes a column that is well-researched and persuasive. I am occasionally impressed. This was not one of those columns. Perhaps Carroll was simply bumping up against a column deadline, and was forced to run with “knee-jerk” reactions. I doubt that many of Carroll’s fellow conservatives will support him in his attempt to excuse a clear breach of contract by the City of Colorado Springs. Many of these conservatives know that our economy rests on the sanctity of contracts. In my opinion, the PERA Board’s strict adherence to its fiduciary obligations in the Memorial Hospital lease matter is a welcome departure from its recent abdication of fiduciary obligations in supporting SB 10-001. The board should be congratulated here.)

In response to the Vince Carroll column, the Chair of the Colorado PERA Board of Trustees (Ms. Wright) eloquently presents PERA’s position in today’s Denver Post:

“The ‘unearned windfall’ that Vincent Carroll claims PERA will receive as a result of the lease of Memorial Health System by the city of Colorado Springs actually represents a payment for benefits already earned by Memorial’s employees.”

“The retirements earned by Memorial’s employees are a part of a total compensation package paid to employees in exchange for work performed.”

(My comment: I do find it odd that the PERA Board Chair is “litigating” the Memorial Hospital case “in the press.” I suspect that Ms. Wright’s letter was reviewed by PERA’s in-house attorneys . . . explaining the multi-week delay in responding to Vince Carroll’s column.)

In her letter, Ms. Wright, the PERA Board Chair, acknowledges in a public forum that PERA retiree benefits are deferred compensation for work that was performed for PERA-affiliated employers by PERA retirees over decades. The PERA Board Chair acknowledges that these retirement benefits are received by PERA retirees as part of an employment exchange transaction. As we know, Colorado PERA representatives have testified before the Joint Budget Committee of the Colorado General Assembly that PERA retiree COLA benefits are a contractual obligation of PERA and PERA-affiliated employers that cannot be diminished, short of “actuarial necessity.” PERA’s General Counsel Greg Smith made no mention of “actuarial necessity” when his comments were reported in the Denver Post prior to the enactment of SB 10-001: “The attorney general’s opinion seems clear that fully vested employees — those retired or with enough years of service to retire — cannot see any benefits reduced, including cost-of-living adjustments.”

In any event, at the time of the enactment of SB 10-001, “actuarial necessity” did not exist. The actuarial funded ratio of the PERA trust funds was a few percentage points below the average actuarial funded ratio for the largest public pension plans in the nation. Should all public pension contracts in the nation be breached at this funded ratio level? A legislative body cannot fail to meet its public pension obligations (PERA’s $4.3 billion underfunding in the last decade) contributing to a decline in the funded ratio of the plan and then, subsequently use this funded ratio decline as a self-serving justification to breach public pension contracts. Further, the Colorado Supreme Court has found (in Kettering) that public pension plan member contractual rights are independent of the actuarial soundness of a pension plan, “claimant’s rights are in no manner contingent on the fund being actuarially sound or unsound.”

For the last decade, the leadership of Colorado PERA and the Colorado PERA Board of Trustees routinely testified before the Colorado Legislature’s Joint Finance Committees and Joint Budget Committee. Colorado PERA’s leadership has had innumerable opportunities to impress upon Colorado legislators the fact that PERA pension obligations are contractual obligations of PERA and PERA employers. I believe that the Colorado PERA Board of Trustees has a fiduciary duty to emphasize this fact to the Colorado General Assembly. I believe that the PERA Board had a fiduciary obligation to recommend constitutional proposals to bolster the PERA trust funds to the General Assembly. Instead, the PERA Board waited until the actuarial funded ratio of the PERA trust funds dipped to the funding level that the trust funds experienced in the 1970s (notably, when no proposals to breach PERA pension contracts were put forth) and then, the PERA Board immediately concluded that the State of Colorado must breach its pension contracts in SB 10-001. The PERA Board embraced a legal contrivance that attempts to justify breach of pension contracts.

That PERA Board concluded that all of the “less drastic” alternatives to the breach of public pension contracts that have been identified here, alternatives that have been adopted by other states, should be ignored. The PERA Board decided to embrace immorality . . . by recommending the taking of accrued, earned, contracted PERA pension benefits in order to reduce public sector debt in Colorado. The Board decided to attempt to force the obligations of all Coloradans onto the backs of a small group of Colorado residents, elderly PERA retirees who devoted their lives to public service and trusted their employers.

A few days ago, the State of Indiana demonstrated again that states need not adopt self-serving legislation to breach their public pension contracts. The State of Indiana provides yet another example of state legislative pension policy enactments that are “less drastic” than the Colorado General Assembly’s breach of PERA pension contracts.

From Pensions and Investments:

“Indiana will contribute an additional $360 million combined to five pension funds as part of a $720 million state budget surplus, Gov. Mitch Daniels announced Thursday.”

“The contributions will increase the funded status of four pension plans to 80% and add $206.8 million to the fifth, the closed pre-1996 Teachers’ Retirement Fund.”

According to the periodical Pensions and Investments, the Indiana Legislature adopted legislation last year that requires half of any budget surplus to be directed to paying down the state’s pension debt, while half is designated to tax relief.

“’The contribution ‘reduces the need to make bigger (contribution) increases … it shores them up and helps the budget in the long term,’ Mr. Horst (Director of the Indiana Office of management and Budget) said.”

“’Our state police, conservation, excise and gaming officers, judges, prosecutors and teachers deserve rock-solid, retirement security in return for their dutiful and often sacrificed public service. Indiana’s pension funds, among the best-funded anywhere, are now in even better condition,’ the governor said.”

“The new contributions mean that four of the pension funds will now be funded at 80 percent, considered fully funded.”

(My comment: The proponents of SB 10-001 disingenuously argued that PERA retiree pension COLA benefits must be taken until the actuarial funded ratio of the Colorado PERA trust funds reaches a 100% funding level, i.e., a funding level that has been achieved twice in Colorado PERA’s 80-year history. The misinformed members of the Colorado General Assembly swallowed this assertion without question.)

“Also as part of the $2.2 billion surplus, the state will return $360 million to state taxpayers with a roughly $100 deduction to individual filers and about $200 for joint filers. More details on the returns will be released later this month, Daniels said.”

“The money means the state’s future obligations for the pensions of judges, prosecutors and law enforcement officers are now 80 percent funded. That’s an amount that Daniels said Thursday is considered acceptable.”

“The payments to the pension funds came under a law better known for the money it will make available for taxpayer refunds. It calls for distributions both to taxpayers and pension programs any time the state finishes its fiscal year with cash reserves that are 10 percent higher than the previous year’s budgeted spending.”

That said, in a number of posts, you’ve posed what I suppose is a “rhetorical” question … that is, why did a number of employee and retiree organizations go along with SB10-001 with barely a whimper. Could it be due to fear of a popular TABOR vote? Also, some retirees, especially the more well-heeled ones, may fear a reduction in their base benefit at some point in the future … something akin to the cap under the private sector Pension Benefit Guaranty Corporation (PBGC), so they’re willing to take a COLA reduction. Just some thoughts from the west side …

THE COLORADO GENERAL ASSEMBLY’S LEGISLATIVE INTENT: CREATION OF A COLORADO PERA AUTOMATIC, CONTRACTED RETIREE COLA BENEFIT IN HOUSE BILL 93-1324.

The initial District Court decision in the case Justus v. State includes the following finding:

“ . . . the 1993 legislative history indicates that no member of the General Assembly expressed intent to create an unchangeable COLA from that date forward. (House Finance Committee Hearing on SB 93-1324, 1993 Legis., at 5:6-10 (Colo. Mar. 24, 1993).”

I believe that this particular court finding is a red herring. The central question is not whether the PERA COLA (escalator, annual benefit increase) can be legally “changed,” it is whether the contracted PERA COLA can be legally, retroactively, diminished. In testimony to the Legislature, and in conflict with the initial District Court decision, a Colorado PERA representative has stated that the PERA COLA cannot be retroactively diminished absent “actuarial necessity,” “because it is part of the contractual obligations that accrue under a pension plan protected under the Colorado Constitution Article II, Section 11 and the United States Constitution Article 1, Section 10 for vested contractual rights.”

Improvements made to the PERA COLA do not breach PERA written, statutory pension contracts. As we have seen, in 1975 the Colorado Supreme Court held in Taylor v. PERA: “Fact that petitioner had certain pension rights at time of her retirement as a state employee did not operate to preclude postretirement pension changes which increased rather than decreased benefits received there under.”

I contend that the legislative intent of the Colorado General Assembly to create an “automatic” contracted PERA COLA benefit (that PERA members could depend upon in retirement, and that was “guaranteed”) was clearly expressed at the first legislative hearing on House Bill 93-1324.

On March 24, 1993 (1:32 PM – 2:28 PM) the House Finance Committee of the Colorado General Assembly heard House Bill 93-1324.

In presenting the bill to the House Finance Committee the bill’s sponsor, Representative Martin, noted that it had been “unanimously approved by the PERA Board.” He said “with this bill, a single actuarially sound increase at a compound rate of up to 3.5 percent per year would be established beginning in 1994.” “I think this is a reasonable approach.”

After Representative Martin’s introduction of the bill, Rob Gray, PERA Director of Government Relations, testified before the House Finance Committee.

Rob Gray said: “The PERA Board does support this bill.” “We felt like it is something that is good pension policy . . . that it makes sense . . . THAT IT IS MAKING PERMANENT CHANGES, and also that it does help employers which is one of the goals of the bill.”

(My comment: Part of the motivation for this bill was to create incentives for long-time public sector employees to retire, and be replaced by less expensive employees. Accordingly, this would reduce salary costs for PERA-affiliated employers.)

Rob Gray commented on the provisions of HB 93-1324 which folded the Cost of Living Stabilization Fund (CLSF) into the PERA trust funds, while simultaneously establishing an automatic, contracted PERA retiree COLA benefit of inflation up to 3.5 percent.

(My comment: As we know, the amount of the contracted COLA benefit was later improved to a flat 3.5 percent [in 2000.] HB 93-1324 also struck the “ad hoc” language from Colorado law whereby the General Assembly reserved the right to approve COLAs before they were paid. HB 93-1324 replaced the former “ad hoc” PERA COLA statute in Colorado law with an “automatic” PERA COLA benefit. HB 93-1324 struck the following language from the PERA statutes “COLA increases shall be made only on approval of the General Assembly.” As a consequence, the discretion of the Colorado General Assembly to diminish the COLA benefit for vested PERA members was eliminated.)

Rob Gray continued: “Last year, there was a bill passed that included a study.” Rob Gray stated that PERA’s actuaries had recommended in the “CLSF Study,” “that a single annual increase should be adopted” for Colorado PERA retirees “which would have a compound increase.”

(My comment: Another motivation for the bill was concern on the part of the PERA Board and the General Assembly that even the current “ad hoc” COLA provisions could lead to the payment of higher COLA rates to retirees in the future if inflation accelerated. Ironically, at the time they believed that capping the COLA at inflation up to 3.5 percent was a good deal for Colorado PERA-affiliated employers, even though the COLA would become “automatic.”)

Rob Gray elaborated: “The (CPI up to) 3.5 percent increase is a reasonable level.” “It will probably come close to what the long-term inflation rate is.”

He said that an advantage of the (CPI up to 3.5 percent) COLA “IS THAT IT ADDS PREDICTABILITY FOR CURRENT AND FUTURE RETIREES, PEOPLE LOOKING AT LEAVING MIGHT LOOK AT THIS AND SAY NOW I KNOW HOW MY FUTURE INCREASES ARE GOING TO BE DETERMINED, EVEN THOUGH THEY MAY NOT MATCH INFLATION.”
“THESE ARE THE REASONS WHY WE THINK FOLDING THE CLSF INTO THE PENSION FUND IS A GOOD IDEA.”

“PERA does support the bill.” “We think it is a positive step, and one that can be afforded within the statutory rates.”

(My comment: Remember, at this point in time the PERA retiree COLA had not yet been improved to the flat 3.5 percent level. That occurred at the 2000 session of the Legislature. The portion of the bill folding the CLSF into the PERA trust funds included the “inflation up to 3.5%” provision. Remember too, that the Colorado PERA Board of Trustees had unanimously supported the bill.

In my opinion, Rob Gray, a representative of the PERA Board of Trustees, in this statement, clearly allays the concerns of PERA members about making the retirement decision. I believe that he offered assurances to PERA members choosing to retire under the written contractual terms of the bill that they need not be concerned that the annual increases in their pension benefits would ever be diminished. With the bill, COLA benefits were now safe, “predictable.” Since the endorsement of this employment exchange transaction by the Colorado PERA Board, and the subsequent codification of contractual terms for this deferred compensation arrangement by the Colorado General Assembly in state statutes, many PERA members have changed the course of their lives by choosing to retire in reliance upon the automatic, contracted PERA COLA.)

In another statement, I believe Rob Gray makes it clear that HB 93-1324 puts into law a new, automatic PERA pension COLA benefit that is a contractual liability of Colorado PERA and PERA-affiliated employers:

Rob Gray: “WHEN A CHANGE IN BENEFITS IS ADDED, LIKE THIS BILL DOES, IT EXTENDS OUT THE PERIOD FOR PAYING OFF THAT UNFUNDED LIABILITY.”

(My comment: If the PERA COLA benefit established in HB 93-1324 was an “ad hoc” COLA benefit, subject to the approval of the Colorado General Assembly, it would not have impacted PERA’s actuarial liabilities. Under that scenario [an “ad hoc” COLA provision], the General Assembly could simply opt against approval of the COLA in any given year, and thus avoid an addition to PERA’s actuarial liabilities. As we know, the bill specifically struck the “ad hoc” nature of the PERA COLA from Colorado law.

Rob Gray stated clearly here that the new automatic COLA provision increased PERA’s actuarial liabilities. Just as the Colorado General Assembly confirmed the “automatic” status of the PERA COLA by removing the “ad hoc” language from statute in HB 93-1324, I believe that PERA’s representative Rob Gray confirmed the “automatic” status of the COLA by emphasizing the fact that the new COLA would increase PERA’s actuarial liabilities.)

Rob Gray’s comments continue:

“We like all three parts of the bill . . . we urge you to support all three.” “We think the cost-of-living changes make a lot of sense.”

Rob Gray: “THE COST OF LIVING STABILIZATION FUND CHANGE ENDED UP PUSHING THE AMORTIZATION PERIOD TOO, SIMPLY BECAUSE YOU’RE FUNDING IT ON AN ACTUARIAL BASIS AND YOU’RE RECOGNIZING THAT IT’S AN ONGOING THING.”

(My comment: Why would PERA’s representative bother to characterize the COLA as “an ongoing thing” if it was temporary? He would not.)

A member of the House Finance Committee inquired about the impact of the bill on current retirees. Rob Gray responded: “What the bill would do is say that a base benefit is created, the amount being paid in 1994 . . . and then the maximum 3.5 percent increase would be applied to that amount.”

Rob Gray: “You’re right that you do have compounding there for the first time.”

“I think the retirees support this change, because they see it as a more actuarial way of funding it.”

“It will be easier for them to understand, because they won’t have two methods of increase . . . it will just be the single increase.”

(My comment: Although, the legislative intent to create a contracted, automatic PERA retiree COLA benefit of [CPI up to 3.5 percent] was manifest at this point in the hearing on HB 93-1324 the record shows a member of the House Finance Committee making a conclusive, indisputable statement of legislative intent regarding the PERA COLA benefit:

“THE ACTUARIES WHO HAVE STUDIED THIS SAID WOULDN’T IT BE BETTER TO FIGURE OUT WHAT YOU CAN AFFORD, UNDER YOUR CURRENT REVENUES, WHAT YOU CAN AFFORD TO GUARANTEE EVERYBODY NOW AND IN THE FUTURE.”

(My comment: This House Finance Committee member made certain that all of her colleagues were on the same page . . . the new, automatic PERA COLA benefit was “guaranteed” into the future for PERA retirees.

When a legislative body grants an “automatic” COLA, it relinquishes its discretion to diminish that COLA benefit in the future for vested pension members and retirees. This makes sense. You would not want to allow someone to retire based on the expectation of a contractual COLA benefit, and later renege on those contractual terms.

You would not want to allow a person to pay perhaps tens of thousands of dollars to a public pension plan to purchase service credit in the plan, based on a “guaranteed” COLA in retirement, [notably, PERA officials encouraged service credit purchases] and then, after the pension member has sent in the check [often from their retirement funds], inform them that the terms of the written statutory contract have changed to their tremendous detriment. It is unjust [and unconstitutional] to retroactively change the terms of the plan for such pension members after they have committed to retirement, or after they have committed to buying service credit.

These members were compelled [as a condition of employment] to pay into the public pension plan. Their pension benefits are supported by their member contributions, and are deferred compensation for work that has been completed.

The legislative intent is clear. When enacting HB 93-1324, the General Assembly created an automatic PERA COLA benefit. Retroactively changing the COLA benefit to the detriment of a PERA retiree is unconstitutional.

The names of seventeen lobbyists who supported SB 10-001 and the organizations that contracted with them are now available on the internet. I have always suspected that there were as many as a dozen lobbyists working for the adoption of SB 10-001. It looks like I underestimated the scale of the effort.

Although I assume that the lobbying records presented on this website are taken from records at the office of the Colorado Secretary of State (there is no other source for the information) I have not compared the website’s list of lobbyists against the Secretary of State’s records.

With a few exceptions, the SB 10-001 lobbyists identified on the website represented Colorado PERA or PERA-affiliated employers. The group of SB 10-001 lobbyists includes five lobbyists hired by Colorado PERA, lobbyists for the “Pikes Peak Education Alliance,” Jeffco and Boulder County School Districts, Boulder County, the Special District Association of Colorado, a business group “Colorado Concern,” the American Federation of Teachers, and the Colorado Association of School Boards.

An article in the publication “State Bill Colorado,” addressed the initial recruitment of the PERA lobbying troop as follows: “PERA is obviously gearing up for some heavy-duty lobbying, one observer noted. The agency has hired two lobbyists from the firm Colorado Communiqué, Collon Kennedy and Steve Adams, former president of the Colorado AFL-CIO. The pension system also has hired Mary Alice Mandarich, a well-connected Democratic lobbyist who formerly was chief of staff for Senate Democrats and who worked on campaigns for former Senate President Joan Fitz-Gerald, former Gov. Roy Romer and gubernatorial candidate Gail Schoettler.” (For some reason, I don’t see the name of Mary Alice Mandarich on the website’s list of SB 10-001 lobbyists.)

In my opinion, the PERA-affiliated employers hired lobbyists to support SB 10-001 since 90 percent of the savings in the bill would be pushed onto the backs of PERA retirees (according to the sponsor of the bill) and away from PERA-affiliated employers.

In one piece of legislation, these PERA-affiliated employers saw an opportunity to erase their Colorado PERA unfunded pension obligations by double digits, I believe. They acted in their own economic interests, immorally in my opinion. I don’t believe that the morality of the legislation was a consideration.

As we have seen recently, a PERA Board member has disclosed that the Colorado PERA Board of Directors allocates up to $400,000 of our trust fund moneys each year for the purposes of lobbying. Our PERA trust funds were used to pay lobbyists hired by PERA in an attempt to take our contracted PERA pension benefits.

How many statehouse lobbyists were retained by the unorganized, trusting, unsuspecting Colorado PERA retirees to prevent the breach of the public pension contracts?

That would be zero. (Colorado PERA retirees were an easy target.)

Other organizations that supported SB 10-001 at the Legislature are not represented in the list of lobbyists.

Meredith Williams recorded the names of these organizations here:

“In Colorado, Senate Bill 1 passed with the support of the Colorado Coalition for Retirement Security, which brought together Friends of PERA (which includes PERA members and retirees), the Colorado Education Association, the Colorado School and Public Employees Retirement Association, AFSCME Colorado, the American Federation of Teachers Colorado, the Association of Colorado State Patrol Professionals, the Colorado Association of School Executives, and Colorado WINS.”

Did these organizations actively lobby the bill, SB 10-001? They may have been exempted from the requirement to register their activities with the Secretary of State’s Office for some reason. They may have simply testified at bill hearings rather than actively lobby.

We should be careful not to assign all of the blame for (SB 10-001) to a group of lobbyists. These lobbyists were hired by boards of directors that chose to endorse legislation that I believe is prima facie unconstitutional. I believe that these organizations hoped that they would be able to seize money (contracted retiree pension benefits) from PERA retirees in order to reduce future pressure on their organizations’ budgets by ultimately lowering PERA employer pension contributions.

The members of the Colorado PERA Board of Trustees, the SB 10-001 lobbyists, and the members of the Colorado General Assembly comprise a group of 133 people. I am quite confident that not a single person in this group of 133 actually read Colorado public pension case law prior to endorsing SB 10-001.

I believe that these 133 individuals relied on the external legal opinion that was ordered by the Colorado PERA Board. This legal opinion provided a rationale for the breach of PERA pension contracts (a faulty rationale in my opinion.)

The Denver Post in an editorial “First, Let Court Rule on PERA,” written prior to the taking of the PERA retiree COLA benefits, encouraged the Colorado General Assembly to send an interrogatory to the Colorado Supreme Court requesting clarification of PERA contractual pension obligations. The Colorado General Assembly donned its blinders and ignored this advice.

Here’s the list of SB 10-001 lobbyists from the statecapitolwatch.com website:

BOULDER COUNTY, REPRESENTED BY MARK RUZZIN. (Former Mayor of Boulder.)

BOULDER VALLEY SCHOOL DISTRICT, REPRESENTED BY TANYA KELLY-BOWRY.

SPECIAL DISTRICT ASSOCIATION OF COLORADO, REPRESENTED BY EVAN J. GOULDING.

SPECIAL DISTRICT ASSOCIATION OF COLORADO, REPRESENTED BY ANN TERRY.
(http://www.sdaco.org/, “SDA has nearly 1,300 special district members and over 150 associate members.”)

COLORADO CONCERN, REPRESENTED BY PETER F. KIRCHHOF.

COLORADO CONCERN, REPRESENTED BY JANICE C. SINDEN.
(http://www.coloradoconcern.com/, Colorado Concern is a business organization. Denver Mayor Hancock has selected Janice Sinden to be his Chief of Staff.)

AMERICAN FEDERATION OF TEACHERS COLORADO, REPRESENTED BY SOLOMON W. MALICK.

COLORADO ASSOCIATION OF SCHOOL BOARDS, REPRESENTED BY JULIE L. GEORGE.

COLORADO ASSOCIATION OF SCHOOL BOARDS, REPRESENTED BY JANE W. URSCHEL.

“IT’S IMPORTANT TO STRESS THAT IT DOES NOT IMPACT ONE SINGLE CURRENT EMPLOYEE, SAYS LOS ANGELES ADMINISTRATOR.”

Is this not absurd that public sector unions in Los Angeles are livid about prospective, legal pension reform, while Colorado public sector unions embrace the decimation of PERA public pension rights?

Do public sector unions in California have anything in common with Colorado public sector unions?

How is it possible for the labor movement in the United States to accommodate both those who advocate the breach of fully-vested, public pension contracts AND those who will not tolerate even prospective reform of public pensions?

Apparently, the labor movement tent in the United States is large enough to cover even those whose positions relating to public pension contractual rights are diametrically opposed. If this is situation is allowed to persist, what significance is there to the modern U.S. labor movement? What meaning remains? As a union member, what do you stand for? Colorado public sector unions have shown that they are ready to sell their principles on the cheap . . . for a buck.

This Los Angeles City Council pension proposal is a “pension reform paper cut” relative to the Colorado General Assembly’s “meat axe dismemberment” of fully-vested PERA retiree pension rights . . . and yet the California public sector unions are still going ballistic.

From the LA Times:

“Despite raucous protests and threats of a lawsuit from labor unions, the Los Angeles City Council voted Tuesday to roll back pension benefits and boost the retirement age to 65 for new civilian employees.”

“The 14-0 vote represented a major victory for Mayor Antonio Villaraigosa, who has been pushing pension reform for months in the face of criticism from labor leaders who have compared him to Scott Walker, the Wisconsin governor who has battled unions for much of his first term.”

“The changes will only apply to newly hired civilian workers and will not affect the retirement benefits of police officers, firefighters and employees at the Department of Water and Power. It will need a second vote within 30 days to go into effect. In the meantime, the council instructed city negotiators to meet with union leaders to try to find common ground and to avert a lawsuit.”

“Labor leaders contend that city officials lack the legal authority to impose pension changes without first going to the bargaining table with unions. Victor Gordo, an attorney with the Coalition of L.A. City Unions, said a lawsuit may be unavoidable because council members have already cast one vote on the changes.”

• Raising the retirement age from 55 to 65;
• capping the maximum retirement benefit at 75 percent of final compensation, instead of the 100 percent currently allowed;
• limiting cost-of-living increases to 2 percent;
• increasing employee contributions to benefits;
• eliminating retiree health care benefits for dependents; and
• using a three-year average to calculate benefits to prevent pension ‘spiking.’”

“City officials said they believed the changes could be made without any negotiation with worker unions because the changes will affect new employees who are not currently union members. But union officials said they had a right to collective bargaining.”

“’But I believe this is the right plan for Los Angeles because it provides retirement stability to our employees who have earned it while allowing the City to continue providing a level of service that Angelenos expect and deserve,’ Villaraigosa said in the statement.”

(My comment: Here the LA Mayor notes that members of the pension system have earned their pension benefits.)

“’The real problem here is the end run around collective bargaining,’ said Bob Schoonover, president of SEIU 721. ‘We are not Wisconsin.’”

“City employees are angry over a budget proposal that would create a two-tiered employee system. Future city employees would have lower benefits from existing workers.”

“The plan would increase the retirement age from 55 to 65. The maximum pension would be 75 percent of final compensation, versus the current 100 percent. Employee contributions would increase to 11 percent. Cost-of-living increases would be limited to 2 percent. The proposal would cover only newly hired civilian city workers.”

“’It’s important to stress that it does not impact one single current employee,’ said Miguel Santana, the city administrative officer.”

“’I agree that we must reform our pension system going forward,’ said city councilman Richard Alarcon.”

The Los Angeles City Council has not proposed to touch the accrued pension benefits of current workers, much less the fully-vested pension benefits of current retirees. The Los Angeles City Council joins governing bodies across the country in demonstrating that public pension reform need not trample on accrued pension rights.

This Los Angeles pension reform measure provides yet another example of public pension reform in the states that is “less drastic” than the breach of Colorado PERA retiree pension rights by the Colorado General Assembly in SB 10-001. Sadly, the Colorado General Assembly had legal pension reform alternatives and ignored them.

In the case Police Pension and Relief Board v. McPhail, the Colorado Supreme Court addressed the contractual pension rights of members of a public pension plan who had met the requirements for retirement eligibility in a pension plan and actually retired. In McPhail, the Supreme Court determined that “it would be unjust and contrary to our basic notions concerning the validity of contracts to hold that this provision (the pension ‘escalator,’ COLA) could be changed by the lawmakers.”
Two years later, in the case Police Pension and Relief Board v. Bills, the Colorado Supreme Court addressed the contractual pension rights of other members of public pension plans; specifically, those who are eligible to retire prior to an adverse change in a pension plan, but choose not to retire prior to the adverse change; and pension members who are “near-retirees,” in the case of Bills, members within a year of reaching retirement eligibility after an adverse change takes effect.

These Colorado Supreme Court public pension cases are clear, on-point precedent. How is it possible that these cases received no mention in the initial court ruling in the case Justus v. State?

Note that the pension benefits of plaintiffs in McPhail and Bills “improved” during the plaintiff’s careers at the Denver Police Department. When the plaintiffs began their careers the pension plan had no contractual obligation to provide a pension escalator for retirees. During the police officer’s careers the pension plan assumed the contractual obligation to provide a pension escalator for retirees. Effectively, the contractual obligation of the pension plan to provide an escalator for retirees “changed” from “no pension escalator,” to a pension escalator providing one-half of any increase in the salary of the rank at which the member retired. The police officer’s pension benefit was “improved.” The contributions made to the pension plan by the officers supported the provision of this improved pension benefit. The fact that a pension benefit is improved during the career of a member of a pension plan in no way negates the obligation of the pension plan to pay the entire contracted pension benefit, (including any contracted pension escalator.)

From Bills:

“Where there was a limited vesting of plaintiffs’ rights in retirement plan prior to their eligibility to retire and such pension plan might be changed prior to the eligibility of plaintiffs to retire, it could not be abolished, or a substantial change of an adverse nature made, without a corresponding change of a beneficial nature.”

In 1947, the Charter of the City and County of Denver was amended by the voters to provide for the payment of a pension escalator (COLA) for police department retirees of one-half of any pay raise granted for the rank at which they retired. In 1956, voters in Denver amended the Charter again, this time in an attempt to repeal the escalator clause. In 1960, 13 former members of the Denver Police Department who had retired after the effective date of the 1956 Charter amendment sued the Police Pension and Relief Board and the City of Denver. These plaintiffs asked that the court determine their rights under the retirement plan and declare their entitlement to the pension escalator.

The plaintiffs included members who had met retirement eligibility requirements prior to the effective date of the 1956 Charter amendment, but had not yet actually retired; members who had met retirement eligibility requirements by including service in the armed forces in their pension “years of service” as allowed under the 1956 charter amendment; and members who were “near retirees,” who had completed more than 24 years of service in the Police Department, but had not yet completed the full 25 years required for retirement eligibility.

The pension administrators and city (defendants) argued that none of the plaintiffs were entitled to the pension escalator adopted in 1947 (My comment: although they had made contributions supporting this pension benefit while they worked; and it was an inducement for them to remain in the employment of the City) because it had been repealed by the 1956 Charter amendment.

The plaintiffs contended that their pension rights had vested prior to the adoption of the 1956 Charter amendment, and even if they possessed a “limited vesting” of pension rights, a unilateral, adverse change could not be made to their pension plan. The district court determined that all plaintiffs were entitled to receive the pension escalator, and “pointedly closed with the observation that to hold to the contrary would ‘beat’ these plaintiffs out of something that was rightfully theirs.”

The defendants appealed. In review, the Colorado Supreme Court held that “this attempted ‘repeal’ of the ‘escalator clause’ by the 1956 amendment is inapplicable to these plaintiffs.”

From Bills:

“ . . . for the past twenty-five years there has been an ever growing school of judicial thought which holds that a person who enters into governmental employment where a retirement plan is in effect, thereby acquires a limited vesting of his pension rights while still in active employment and a vested pension right upon retirement. The same result obtains where during his active governmental employment a particular pension plan is placed in effect, the theory being that such is a material inducement to the employees to remain in the employment of the government.”

(My comment: I want to draw attention to this Colorado Supreme Court determination that the improvement in the escalator clause [COLA, or annual benefit increase] was a material inducement for plaintiffs to remain in the employment of the government.)

In the Bills decision, the Supreme Court notes that this “contract principle” was recognized and approved in the case Police Pension and Relief Board v. McPhail. When a member of a pension plan meets eligibility requirements for retirement and retires “his retirement rights thereupon become a vested contractual obligation, not subject to a unilateral change of any type whatsoever.”

The Colorado Supreme Court found in Bills that those who were eligible to retire prior to the effective date of the 1956 Charter amendment “were clearly unaffected by the attempted repeal of the escalator clause.”

From Bills:

“In the McPhail case we approved the following language used by the Pennsylvania Supreme Court in the McGovern case: “. . . until an employee has earned his retirement pay, or until the time arrives when he may retire, his retirement pay is but an inchoate right; but when the conditions are satisfied, at that time retirement pay becomes a vested right of which the person entitled thereto cannot be deprived; it is ripened into a full contractual obligation.”

Bills, addressing contractual pension rights of members not eligible to retire at the time of an adverse change:

“We now hold that not only prior to their actual retirement, but also prior even to their eligibility to retire, there was a limited vesting in these plaintiffs of their pension rights to the end that although prior to their eligibility to retire the pension plan could be changed, it could not be abolished NOR COULD THERE BE A SUBSTANTIAL CHANGE OF AN ADVERSE NATURE, WITHOUT A CORRESPONDING CHANGE OF A BENEFICIAL NATURE. An employee’s pension rights prior to his eligibility to retire may be modified for the purpose of keeping the pension system flexible to permit adjustments in accord with changing conditions if at the same time the basic integrity of the plan is till maintained. Hence, prior to eligibility for retirement, changes may properly be made in a pension plan if these changes strengthen or better it, or if they are actuarially necessary. These particular plaintiffs had every right to expect that upon retirement their pension would reflect subsequent increases in pay granted to those in active service. The charter amendment with which we are here concerned constituted an adverse change in the overall pension plan which deprived plaintiffs of a very substantial right, was unaccompanied by a corresponding change of a beneficial nature, was not shown to be actuarially necessary, nor that it in anywise strengthened or bettered the pension plan.”

(My comment: SB 10-001 attempts to deprive PERA members with vested pension benefits of substantial rights. SB 10-001 offers no corresponding change of a beneficial nature to these PERA members. The Colorado General Assembly has confirmed for us that SB 10-001 was not actuarially necessary by granting $100 million in purely discretionary property tax relief one year after its breach of PERA pension contracts.)

More from Bills:

“In conclusion, laying aside all legal niceties, it would appear to be grossly unfair and inequitable to take from the plaintiff Bills, for example, his right to have his pension reflect the subsequent raise in pay granted active members of the department, a right conferred on him by the 1947 charter amendment, he having thereafter on the strength of this solemn promise, contributed to the pension fund 3 1/2% of his salary for many years, and as of April 1, 1956, the effective date of the purported ‘repeal’ of the escalator clause, had completed 24 years, 10 months and 23 days of active service in the police department and was therefore only 38 days away from the date when he would complete his 25 years of service and be eligible to retire. In considering a similar situation, the Pennsylvania Supreme Court in Hickey v. Pittsburgh Pension Board, supra, very appropriately said: ‘But WHEN THOMAS HICKEY STARTED CONTRIBUTING TO THE CITY PENSION FUND IN 1915, THERE APPEARED ON THE HORIZON NOT THE SLIGHTEST SUGGESTION OF A CLOUD TO IMPERIL THE PENSION TOWARD WHICH HE WAS FAITHFULLY TO PLOD FOR 31 YEARS. It is not reasonable or logical to suppose that, given the liberal attitude that the General Assembly has assumed in this field of legislation, that it would impose restrictions so fundamentally contrary not only to its policy but to the elemental rules of fairness ‘WHETHER IT BE IN THE FIELD OF SPORTS OR IN THE HALLS OF THE LEGISLATURE IT IS NOT CONSONANT WITH AMERICAN TRADITIONS OF FAIRNESS AND JUSTICE TO CHANGE THE GROUND RULES IN THE MIDDLE OF THE GAME.’ For these reasons we hold that the provision of the 1956 charter amendment which repealed the ‘escalator clause’ theretofore adopted in 1947 is ineffective and inapplicable to these plaintiffs and that the trial court was correct in entering a money judgment for the plaintiffs in the amounts prayed for. Judgment affirmed.”

COLORADO SUPREME COURT: CONTRACTUAL PUBLIC PENSION RIGHTS ARE INDEPENDENT OF THE FINANCIAL STATUS (ACTUARIAL SOUNDNESS) OF A PUBLIC PENSION SYSTEM.

At the outset we should remember that Colorado PERA has testified to the Colorado General Assembly that the PERA retiree COLA benefit is a contractual obligation of Colorado PERA and Colorado PERA-affiliated employers. As we have seen, Colorado PERA, in a written document to the Colorado General Assembly’s Joint Budget Committee on December 16, 2009, states that the PERA COLA benefit IS a contractual obligation of PERA:

“The General Assembly cannot decrease the COLA (absent actuarial necessity) because it is part of the contractual obligations that accrue under a pension plan protected under the Colorado Constitution Article II, Section 11 and the United States Constitution Article 1, Section 10 for vested contractual rights.”

Prior to initiating its political, lobbying and legal campaigns to take contracted, accrued PERA retiree COLA benefits Colorado PERA ordered an external legal opinion. This legal opinion is not a public document (although it has been mentioned and characterized, publicly, many times by PERA officials.) I assume that this external PERA legal opinion provided a rationale (in my opinion a faulty rationale) for the PERA Board to support the attempted taking of PERA COLA benefits, specifically arguing that COLA benefits could be taken with the demonstration of “actuarial necessity.” I suspect that the PERA Board, encouraged by Colorado public sector unions, decided to test the validity of its external legal opinion by supporting SB 10-001. What instructions did the PERA Board of Trustees provide to the law firm crafting this opinion? Did the author of the opinion set out initially in search of a legal contrivance that would attempt to justify breach of public pension contracts?

The testimony that Colorado PERA provided to the Joint Budget Committee of the Colorado General Assembly in December of 2009 directly conflicts with the initial decision of the Denver District Court in the case Justus v. State.

I imagine that this is a rather uncommon occurrence in civil litigation . . . for a defendant to hold a public position (on tape at the Colorado General Assembly) that is diametrically opposed to a recent court ruling favoring the defendant. Colorado PERA’s written and stated position that the retiree COLA benefit is a contractual obligation of PERA and PERA-affiliated employers should be thoroughly explored at trial.

Now to the Colorado Supreme Court decision addressed in this post . . . .

Take a look at the case Keterring v. Retirement Board when you have the opportunity. This case was decided by the Colorado Supreme Court in 1963. The case addresses the claims of a widow of a deceased former judge for an annuity from PERA nine years after the judge had died. The PERA Board denied her application, but notified her that she was eligible to receive a refund of his contributions made over the course of his judicial career. The question as to whether or not Mrs. Kettering was a properly designated beneficiary arose in the case. Also addressed in the case was testimony concerning the actuarial status of the PERA trust funds.

The trial judge in Kettering ruled that the PERA Board had properly denied the application. Judge Ketterring died before reaching retirement eligibility. The trial court denied retroactive application of a 1957 statute to Mrs. Kettering’s situation. The Colorado Supreme Court affirmed the decision of the trial court.

I’m not as interested in the facts of the Kettering case as I am in the determination that is made by the Colorado Supreme Court at its conclusion. In the final paragraph of Kettering the Colorado Supreme Court writes:

“Counsel urges that it was error for the trial court to permit the secretary of the association to testify in substance that to allow claims of this type would render the fund actuarially unsound. We agree with counsel that such evidence is irrelevant. Claimant’s rights are in no manner contingent on the fund being actuarially sound or unsound. We doubt that the learned trial judge was influenced by this evidence. Be that as it may, we have carefully reviewed the record and have reached our conclusion, uninfluenced by fears or hopes for the soundness of the fund.”

“CLAIMANT’S RIGHTS ARE IN NO MANNER CONTINGENT ON THE FUND BEING ACTUARIALLY SOUND OR UNSOUND.”

Here the Colorado Supreme Court states its determination that contractual public pension rights in Colorado are independent of the financial status of the retirement system providing pension benefits. In accordance with this Colorado Supreme Court determination, the contractual rights of Colorado PERA retirees to their fully-vested retirement benefits (including the “automatic,” retiree COLA “escalator”) are “in no manner contingent” on the actuarial status of the Colorado PERA trust funds.

COLORADO WINS EMPHASIZES FACT THAT COLORADO PERA RETIREES DO NOT RECEIVE SOCIAL SECURITY BENEFITS. “THE ONLY RETIREMENT SAFETY NET STATE WORKERS HAVE IS THEIR PERA BENEFITS . . .”.

A coalition of Colorado public sector unions (Colorado WI
NS) has posted a letter exhorting the Governor, Legislature and Colorado Department of Personnel and Administration to consider that, unlike public sector retirees in the preponderance of the states, Colorado PERA members and retirees are not eligible to participate in the Social Security System and are, accordingly, entirely dependent on their contracted, accrued public pension benefits. Note that this coalition of public sector unions supported SB 10-001, a bill that Colorado PERA retirees claim breached their fully-vested PERA public pension contracts.

I am astounded that Colorado WINS, a proponent of SB 10-001, legislation that in my opinion represents a clear and immoral breach of Colorado PERA public pension contracts, has the cheek to highlight in a letter to the Governor and Legislature the utter dependence of PERA members on their PERA pension contracts. Not so long ago, Colorado WINS urged the Colorado Governor and Legislature to diminish the PERA COLA benefits upon which PERA members depend.

In the August 17, 2012 letter to Governor Hickenlooper, the Legislature’s Joint Budget Committee and the state Department of Personnel Colorado WINS writes;

“DPA’s comparison of private sector workers with state workers in PERA reflects some of the common mistakes that are often made when comparing stand-alone defined benefit plans to the private sector.”

“The State does not participate in national (sic) Social Security system. As a result, the state does not incur the 6.2% employer share of FICA and the employee does not incur the 6.2% employee share of FICA. State employees do not accrue social security benefit (sic) and may even incur a reduction in any earned social security benefit from other employment, as well as benefits due as a spouse of someone who has earned a spousal social security benefit, by virtue of the PERA defined benefit. Thus, the only retirement safety net state workers have is their PERA benefits – social security will not be there when they retire.”

“As pointed out by DPA, most employers in the market pay for social security and contribute something – usually as a percent of pay – to either a defined benefit or a defined contribution plan. The result is that the State contributes significantly less to the future retirement of state employees than is available in the market.”

Colorado WINS concludes that Colorado state government contributes less for retirement “than is available in the market.”

If Colorado WINS is correct, our state government makes a relatively minimal effort to support the retirement of its workers, and yet this state government schemes to abandon even the contracted public employee retirement obligations that have accrued under this minimal effort.

As we have seen, according to the US Census Bureau and NASRA, Colorado ranks #32 among the states in taxpayer support for public pensions. Colorado state and local governments dedicate 2.16 percent of total state and local government spending for the support of public pensions. (The national average percent of state and local government spending dedicated to public pension support is 2.89 percent.)

Was it “actuarially necessary” for the state Legislature to abrogate its public pension contracts? No. The Legislature conclusively demonstrated that it is not confronted by a “fiscal emergency” when, at its next legislative session after breaching pension contracts in SB 10-001, it granted $100 million in purely discretionary property tax relief. The Legislature confirmed for us all that it places the policy goal of tax reduction in the state above the sanctity of contracts . . . above the U.S. Constitution.

Over the last decade the Legislature skipped out on $4.3 billion in annual required contributions to PERA that were recommended by PERA’s actuaries. The Legislature has been the primary contributor of downward pressure on Colorado PERA’s actuarial funded ratio. For such an organization to later argue the necessity of breaching public pension contracts, acting in its own interest, is hypocrisy nonpareil.

As we have seen, at the time of the taking of the contracted PERA COLA benefit by the General Assembly, the actuarial funded ratio (AFR) of the Colorado PERA trust funds was a mere 3.1% lower than the average AFR for 57 state retirement systems surveyed by Wilshire Associates. In light of this fact, why are we not seeing every public pension system in the nation attempt to breach fully-vested pension contracts? For the entire decade of the 1970s the PERA AFR was lower than it was at the time of the taking of the contracted COLA, yet there was no campaign to breach retiree pension contracts.

Thank You Mr. Moncrief : I enjoy the hope you provide everyone in your narratives . You are so knowledgeable ! I just wish the justice system was reading your material. Thank You again for the information. Gary

News for the Treasurer . . . the Colorado PERA Board also uses these funds for legislation it supports . . . contract clauses be damned. Fiduciary duty be damned. Morality be damned.

With unlimited access to our trust fund dollars, and members of the Colorado General Assembly who possess inadequate knowledge of contractual public pension obligations, it is not surprising that Colorado PERA succeeded in persuading the Legislature to adopt unconstitutional pension legislation.

Ironically, just as Colorado PERA retirees historically placed their trust in Colorado PERA, the legislators supporting SB 10-001 also placed their trust in Colorado PERA and believed the PERA lobbying campaign.

The complete SB 10-001 lobbying troop included not merely $400,000 worth of PERA lobbyists, but also an unspecified number of public sector union lobbyists. My guess is that the complete SB 10-001 lobbying troop included up to a dozen statehouse lobbyists.

Meredith thoughtfully recorded the names of public sector union supporters of SB 10-001 for posterity:

“In Colorado, Senate Bill 1 passed with the support of the Colorado Coalition for Retirement Security, which brought together Friends of PERA (which includes PERA members and retirees), the Colorado Education Association, the Colorado School and Public Employees Retirement Association, AFSCME Colorado, the American Federation of Teachers Colorado, the Association of Colorado State Patrol Professionals, the Colorado Association of School Executives, and Colorado WINS.”

Even with this lobbying tour de force the COLA-theft bill, SB 10-001, barely managed to squeak through the House of Representatives. Many members could see what was happening. Three votes turned in the House would have killed the bill on a tie.

PRIME SPONSOR OF SB10-001: COLORADO GENERAL ASSEMBLY SHOULD REPEAL PERA LAWS THAT “ARE NOT WORKING.”

To me, this comment sounds like the prime sponsor of SB 10-001 is giving ground . . . realizing that it was a mistake to push through PERA legislation that is prima facie unconstitutional. It was a mistake to accept carte blanche a proposal that was being railroaded by public sector unions and pension administrators acting with an agenda.

Article:

“Rural Solutions held their 11th annual Legislative Breakfast Friday at the Washington County Event Center. There were about 50 people in attendance.”

“Brandon Shaffer, candidate for the 4th Congressional district, then talked to everyone. Shaffer asked everyone present to name a law they would like to make or a law they would like to change.”

“He also said that they need to come up with a long term solution for PERA to handle the deficit, and that they need to check the laws that have been passed and see if they are working and if not, either change them or repeal them.”

(My comment: I can remember the sponsors of SB 10-001 and the PERA lobbying troop and the public sector union lobbyists arguing that the bill was such a “long-term solution.” If so, why is another “long-term solution” now necessary?)

SYNOPSIS AND COMMENTARY ON THE COLORADO SUPREME COURT’S DECISION IN MCPHAIL.

In 1956, Denver voters approved a Charter amendment that attempted to retroactively eliminate a contracted “automatic” increase in retired Denver police officer’s pension benefits. This foundational Colorado Supreme Court public pension case was decided in 1959. Below are my layman’s impressions of the case and some excerpts.

On the first page of McPhail, the Colorado Supreme Court refers to the pension escalator in the case as an “automatic” increase. This is identical language to that used by Colorado PERA and other interested parties to describe the Colorado PERA contracted retiree COLA benefit on innumerable occasions.

“PERA Benefits at a Glance,” 2004:

“Receive an annual automatic increase of 3.5 percent in your monthly retirement benefit to help keep up with the cost of living.”
PERA Legislative Update, February 2006:

“Employees hired before January 1, 2007 remain in PERA Pioneer (and will receive) automatic increase of 3.5% per year after retirement.”

“PERA members hired January 1, 2007 or later, called PERA Centennial, no guaranteed annual increase after retirement.”

The Legislative “fiscal note” staff wrote the fiscal note for House Bill 00-1458 (the bill that improved the COLA benefit to a fixed 3.5 percent.) The fiscal note for this bill, HB 00-1458, includes the term “automatic” in the following description of the retiree COLA:
“Established 3.5% compounded annual automatic COLA effective March 2001.”

In 2001, Buck Consultants (contracted by Colorado PERA) provided an actuarial report to the Legislative Audit Committee of the Colorado General Assembly. This Buck Consultants report clearly identifies the Colorado PERA 3.5 percent COLA as “automatic,” refers to “guaranteed benefits at retirement,” the “fixed” COLA, that is “compounded annually for each year of retirement,” and contrasts the PERA COLA with an “ad hoc” COLA “as approved by Legislature.” If Colorado PERA officials did not agree with the Buck Consultants characterization of the PERA retiree COLA as an “automatic” COLA, then why did these Colorado PERA officials not state their objections to this characterization when the Buck Consultants report was presented to the Legislative Audit Committee in 2001?

Over the years, Colorado PERA has published, and periodically updated a memorandum with a title along the lines of “History of Colorado PERA Legislation.”

The 2009 version of this memorandum is stored on the website of the Colorado General Assembly at this link:

Right clicking on this PDF, and then clicking on “Document Properties” reveals that the memorandum was prepared by Mr. Karl Paulson of Colorado PERA on 11/30-2009.

When it became apparent that part of PERA’s legal strategy would be to deny the “automatic” nature of the retiree COLA benefit, PERA suppressed this “History of Colorado PERA Legislation” memorandum which identifies the PERA COLA as an “automatic” COLA benefit. However, they were unable to remove the copy stored on the website of the Colorado General Assembly. PERA replaced the memorandum with a “scrubbed” version of the memo, striking all reference to the “automatic” COLA, as well as pre-1993 references to the “ad hoc” PERA COLA, (which the COLA was at the time.) The “scrubbed” memo is available here:

The “History of Colorado PERA Legislation” memorandum from 2009 (that is, the “non-scrubbed version of the memo) describes the COLAs in HB 00-1458 as follows:

“HB 00-1458

Established 3.5% compounded annual automatic COLA effective March 2001.” “Prior to this date, the annual COLA equaled the lower of the actual inflation rate or annual 3.5% cumulative increases since retirement.” (The PERA COLA was improved from “automatic” lesser of 3.5 percent or inflation, to a flat “automatic” 3.5 percent in HB 00-1458.)

Additional PERA documents describing the PERA retiree COLA as “automatic” are available on PERA’s website at the following links:

(As an aside, also note that in 1975, the Colorado Supreme Court held in Taylor v. PERA: “Fact that petitioner had certain pension rights at time of her retirement as a state employee did not operate to preclude postretirement pension changes which increased rather than decreased benefits received there under.”

Toward the end of the decision in Taylor v. PERA the Colorado Supreme Court writes “As was noted in Endsley v. Public Employees Retirement Association . . . (1974) ambiguities appearing in statutes regulating pension and retirement funds are construed favorably toward the employee.” Ten years later, this Colorado Supreme Court determination was cited by then-Colorado Attorney General Duane Woodard in an Opinion of the Attorney General: “In resolving this question, I am guided by the CARDINAL PRINCIPLE that ambiguities in statutes regulating pension and retirement funds are to be construed in favor of the employee. Link:

Back to the McPhail case, the Colorado Supreme Court found that pension laws adopted by the governing body constitute “a written contract.” “Police officers were employed under a written contract, the terms of which were set forth in the Denver Charter and Denver ordinance.” Accordingly, PERA pension statutes adopted by the Colorado General Assembly constitute a written PERA pension contract.

The written contract in Denver Ordinance describing the Denver Police Officer’s pension provided that if the police officers fulfilled the conditions to qualify for their pension and the pension escalator, then their pension rights “were contractual and could not be impaired by an amendment . . . repealing a provision which geared pension increases to salary increases of members of the police department.” The terms “pension COLA” and “annual benefit increase” are examples of the many terms used to describe the varieties of pension escalators used by public pension systems in the United States. Some of these are “automatic” and contractual like the Colorado PERA COLA; and some are specifically identified as “ad hoc,” and may be legally altered on a retroactive basis.

In the McPhail case, the Colorado Supreme Court also makes reference to the terms “escalation principle,” the “escalation provision,” the “escalation method,” and the “escalator clause.”

Like the statutory, contracted Colorado PERA COLA, the term “escalator” simply describes a contracted method by which a periodic increase in a monthly pension benefit will be provided. Alternatively, governmental entities may choose to provide a total contracted pension benefit by means of larger, fixed monthly payments. The choice of a governmental entity to include an escalator clause as an “automatic” pension benefit in no way negates the contractual obligation of that governmental entity to provide the pension benefit in toto. Where governmental entities “have not reserved the right” to make changes to an automatic escalator after a pension member has reached retirement eligibility (Colorado PERA has no such reserved right), the U.S. and Colorado constitutions proscribe such retroactive changes.

Rather than being represented by a fixed number (for example, the fixed PERA 3.5% statutory COLA), or linked to a measure of inflation, the Denver police officer’s pension escalator was to be determined based upon the current salary of the rank at which they retired. The police officer’s pension escalator was one-half of raises granted to the rank at which they retired.

In McPhail, the Colorado Supreme Court also found that the police officer’s pension was “contributory” (like Colorado PERA) and that the officer’s pension rights were contractual rights that could not be impaired by amending legislation (like SB 10-001).

“It is important to note that the pension system which is here involved is a so-called contributory system.” “. . . each member of the Police Department contributes 3.5% of his salary.”

“Here the contract was set forth in the basic law and the rights were acquired following 25 years of faithful service during which time the plaintiffs paid an actual and regular consideration.”

“Each of the plaintiffs served and elected to retire pursuant to the escalation principle.”

“ . . . the plaintiffs who lived and worked under and whose rights accrued pursuant to the escalation clause.”

“on this point plaintiffs have argued that the escalation clause was a promise held out to members of the department; that it induced them to retire by promising that they would be protected against the inflationary spiral; (My comment: From “PERA Benefits at a Glance,” 2004: “Receive an annual automatic increase of 3.5 percent in your monthly retirement benefit to help keep up with the cost of living”); that plaintiffs changed their positions in reliance on the continuation of this formula and that grave injustice would result from destruction of these expectations.”

In McPhail, the Colorado Supreme Court found that public pension benefits constitute deferred compensation: “The fireman and policeman accepts less take home pay in order to provide a generous retirement system. The benefits thus provided are definitely a part and an important part of his compensation.”

In McPhail, the Colorado Supreme Court cites the case Hickey v. Pittsburgh Pension Board : “ . . . the pension of today . . . is the product of mutual promises between the pensioning authority and the pensioner; it is the result of contributions into a fund which exists for the single purpose of pensions.”

More from Hickey: “The permissible changes, amendments and alterations provided for by the Legislature can apply only to conditions in the future, and never to the past. According to the cardinal principle of justice and fair dealings between government and man, as well as between man and man, the parties shall know prior to entering into a business relationship the conditions which shall govern that relationship.”

“The impairment of contractual obligations by the Legislature is equally abhorrent because such impairment changes the blueprint of a bridge construction when the spans are half way across the stream.”

In McPhail, the Colorado Supreme Court cites the case: Retirement Board of Allegheny County v. McGovern:

“The language of the (Pennsylvania) Court is applicable to the conditions which are here present: Retirement pay is defined as ‘adjusted compensation’ presently earned, which, with contributions from employees, is payable in the future. The compensation is earned in the present, payable in the future to an employee, provided he possesses the qualifications required by the act . . .”.

More from McGovern: “ . . . when the conditions are satisfied, at that time retirement pay becomes a vested right of which the person entitled thereto cannot be deprived; it has ripened into a full contractual obligation.”

The Colorado Supreme Court concludes:

“ . . . WE BELIEVE THAT IN A CASE, SUCH AS THAT BEFORE US, INVOLVING A CONTRIBUTORY SYSTEM IT IS THE ONLY REASONABLE CONCLUSION THAT CAN BE REACHED (THE CONTRACT PRINCIPLE.)”

“IT WOULD BE UNJUST AND CONTRARY TO OUR BASIC NOTIONS CONCERNING THE VALIDITY OF CONTRACTS TO HOLD THAT THIS PROVISION COULD BE CHANGED BY THE LAWMAKERS.”

“WE CONCLUDE THAT THE (COLORADO CONSTITUTIONAL CONTRACT CLAUSE) APPLIES TO THE STATUS OF THE PLAINTIFFS HERE AND PREVENTS ENFORCEMENT OF THE (DENVER CHARTER AMENDMENT) AGAINST THEM.”

I listened to the audio file of the arguments. I felt our attorney Rosenblatt was very relaxed and focused while PERA/Colo’s attorney was hyper and throwing everything at the wall to see what might stick. Our attorney was concise and consistent with the points made in the Appellant’s Reply Brief filed on June 15.
It is hard to tell from the questions the judges asked what they might rule, and I really do not know how legal appeals can work out anyway. If we lose this, more cuts will be coming down upon retirees as SB-10-101 allows open season on our contracted benefits. It is hard for me to see how the Appeals Court can do anything but throw out the District Court’s ruling if Contract Law is to mean anything in Colorado.

Same thoughts except that I thought the questions by the judges sounded much more challenging to the the State than to SavePERA. I was also surprised to hear that vesting comes in degrees and that, based upon previous court rulings, not all vesting is considered a “fully and unconditionally guaranteed as a legal right, benefit, or privilege” as my dictionary puts it. –John